Ralph Perna, Newmark Grubb Knight FrankIt is that time of year again for my annual review. Let us look back on this past year and consider what we may expect in 2017. First, however, I would like to mention that the prediction I made for 2016 in my December 2015 year-end review was “dead on.” In that review, I projected the continued brisk activity in the industrial sector, increasing prices for both sales and leases, and that available inventory would be limited. I also mentioned that we would start seeing a leveling off of activity in the fourth quarter.
This time last year, the industrial market prices for leases in Suffolk County were in the $8.50 per s/f gross range. Today, prices for the same buildings are ranging between $8 to $9 per s/f net. The same holds true for Nassau County except that we are seeing prices in the $14 to $16 per s/f gross range. Needless to say, prices for the sales of industrial buildings on Long Island also set new records. The questions are, “Can these price levels be sustained?” and “Can companies committing to theses price levels be competitive within their marketplace?”
Looking back on where most of the activity was generated, we see, once again, companies relocating from the boroughs created a good part of the activity. Over this past year, I believe most of the activity from Brooklyn and Queens was because sales and lease prices for buildings in those areas were very, very expensive.
Let us not forget that Long Island companies were also expanding.
Most of the local Long Island expansion activity appears to have been in healthcare industry. Generic pharmaceutical companies, nutraceuticals, pharmaceuticals and ingredient and material suppliers all appear to be doing very well. Additionally, food industry suppliers and preparers, cosmetic companies and display companies all seem to be on track for operational expansions.
With the amount of activity we’ve had during this past year, there is a scramble to find good industrial buildings for sale and lease on Long Island. In my over 40 years of brokerage in the Long Island market, I do not believe I’ve ever seen the vacancy rate at such a low level. It has created sharp prices increases for buildings available for sale and lease.
So what do we have to look forward to in the coming year? There is going to be a period of uncertainty resulting from our new incoming president. With the purported changes on our tax structure and increased tariffs on imported goods to include a 35% import tax for American-based businesses outside of the United States, we could be in for some interesting times. Further heightening the dilemma, all signals are pointing to increased interest rates. This will begin to affect how much purchasers will be able to spend to buy buildings, along with across the board increases on working capital, which may result in inflation, subsequently leading to higher costs for goods and services.
This being said, I believe we are going to see a much different marketplace taking shape in the coming year. I am starting to see space come on the market, which is good, but the prices of buildings available for sale and lease are at levels that are certain to be challenged. We may start to see a “wait and see” position for companies considering an expansion.
For the past year, I have been saying that our expansion cycle on Long Island, in the boroughs and Westchester has been indeed on fire and, as in other cycles, will peak. I believe it already has.
As new available buildings become available with lofty prices and the other factors (i.e., higher interest rates, an extended expanding economic cycle, and a new president) we could be in for a year of many challenges.
Stay tuned.
Ralph Perna is the executive managing director of Newmark Grubb Knight Frank, Melville, N.Y.
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